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HSG – Impressive business results, supported by the domestic market

• Revenue and gross profit surge: HSG reported revenue for Q3 of FY 2024 at VND 10,840 billion (+17.2% QoQ, +25.4% YoY), with gross profit reaching VND 1,337 billion (+19.7% QoQ, +49.9% YoY), as the gross profit margin improved to 12.3%. By the end of Q3, revenue reached VND 29,162 billion and gross profit reached VND 3,404 billion, showing a strong increase of +74.03% YoY. Net profit after tax stood at VND 695.62 billion, a significant improvement from the net loss recorded in the same period in 2023, achieving 231% of the annual business plan.
• Domestic volume growth: Domestic coated steel consumption reached 175,773 tons (+50.7% QoQ, +42% YoY), while total consumption reached 527,267 tons (+15.1% QoQ, +36.7% YoY). By the end of Q3, total consumption reached 1,446,432 tons, growing +15.8% YoY.
• Pressure from export markets: we expect challenges in the export market to result in a -26.4%QoQ decline in consumption volume. However, the domestic market is expected to continue its recovery, driven by demand from the industrial park sector and a gradual rebound in the residential real estate market. Accordingly, total revenue is estimated to reach VND 8,808 billion (+7% YoY), with gross profit projected at VND 956 billion, reflecting a gross profit margin of 10.8%. Net profit after tax for Q4 FY 2024 is forecast to reach VND 136 billion (-69% YoY).
• We used two methods to value the stock: FCFF and P/B, with a 70% weighting on the P/B method, the fair value of HSG is determined to be VND 23,500 per share. This corresponds to a total expected 12-month return of 17.6% based on the closing price as of September 9, 2024. In the short term, HSG shares are facing negative pressure due to declining HRC prices and a narrowing gap between domestic and international steel prices. However, given its discount to the target price and its leading position in the domestic coated steel market, investors may consider short-term trades in the stock when the price of its key raw material, HRC, recovers.